Agreeing a rate
Private loans can be interest-free or charge a rate you both agree. Writing the rate and repayment plan down avoids misunderstandings later.
Interest is worked out each month on the balance you still owe, at one twelfth of the annual rate. Early payments are mostly interest; as the balance falls, more of each payment repays the loan.
Worked example
A £5,000 loan at 3% over 3 years costs £234.62 in interest, with repayments of £145.41 a month.
Tax on interest
Interest the lender receives may count as taxable income. Check with HMRC or an accountant.
Inputs for the private loan interest calculator
Amount to borrow
The amount being lent.
Interest rate (per year)
The rate you've agreed. Enter 0 for an interest-free loan.
Term
How many years you'll repay over. A longer term means paying interest for longer.
CALCULATOR QUESTIONS
Private loan interest calculator questions
What interest rate should a family loan charge?
Any rate you both agree, including 0%. Put it in writing.
Is interest on a family loan taxable?
Interest the lender receives may be taxable. Check with HMRC or an accountant.
Why do I pay more interest at the start?
Interest is charged on the balance you owe, which is highest at the start. As you repay, the balance falls and so does the interest.
How much interest is on a £5,000 loan at 3%?
Over 3 years, £234.62.